Monday, October 4, 2010

Revisiting the Console Cost

Ever since OnLive went live, streaming real games to real people, many (including myself) compared the announced monthly fee for the service to the cost of a console, which is an apt comparison to make. OnLive functions like a console - providing a platform for playing games that will, I expect, one day rival Nintendo, Sony, and Microsoft.

The original announcement suggested a $14.95 fee, which was quickly reduced to a one-year "founders program", sponsored by AT&T so users pay nothing for the service during the year, with an expected $4.95 per month charge in the second year. At $14.95/month, the service for an assumed 3-year timespan compared better to PC's than consoles; at $4.95/month, the service competes better in the console price-range.

I've argued that the key to success for a company that streams video games to customers will not just be in overcoming technical issues, but rather in providing a positive value-proposition for consumers. I questioned whether OnLive could provide enough value to consumers who would be charged both full-price for individual games, and a monthly subscription to boot.

All the while, I was hoping that OnLive would make an announcement like this.

Things just got very, very interesting in the emerging world of streaming video games. By dropping monthly fees entirely for the use of its service, OnLive just eliminated a huge reason to avoid its platform, and suddenly makes a compelling value-proposition case for its current and would-be customers. Even were one to make no game purchases, there is value in watching players in the Arena - like watching a live demo - for games one is considering, let alone play a half-hour demo, which the service also allows for, for free.

Without a doubt, OnLive is banking on the idea that once they have you on their service, you will eventually spend money there. And I'm guessing that is exactly what will happen. By dropping its monthly subscription fee, OnLive has engineered a welcoming community. By encouraging the casual browser, OnLive will gain the customer.